Tremendous Flop

GUALFIN, ARGENTINA – Now comes a report from the Financial Times that tells us the nation’s No. 1 industry – home building – has been backing up for a quarter of a century.

According to the newspaper, U.S. home builders “started work on the same number of houses in the past year as they did a quarter of a century ago, even though there are 36% more people working as residential builders now than then.”

 

Moat contractors have been particularly bad. Incidents like the one depicted above are reportedly increasingly frequent.

Image credit: Gary Larson

 

The report puzzled over the apparent collapse in productivity in the sector. “Somewhat difficult to believe,” say researchers (it’s not so difficult for us to believe… but we’ll get to that in a minute).

As we’ve written about before, so far, the 21st century has been a tremendous flop. At least for America.

Economic growth rates have been trending down for 40 years. The number of people with “breadwinner” jobs – as a percentage of the working-age population – is at a 40-year low. And home ownership is back to where it was half a century ago. There are pockets of prosperity. But get too far from the good neighborhoods and you find dilapidated houses… minimum wages… and drugs.

What happened to all that dazzling new technology from Silicon Valley? What happened to all that super-duper capital allocation being done by Wall Street – matching young entrepreneurs with trillions of dollars in financing? And where did all those trillions of dollars in new money – put out by the Fed via its quantitative easing (QE) program – go?

Many are the bogeymen, the fall guys and the stooges in this spectacle. Ask around: Some blame the Democrats. Some blame the Republicans. Some blame robots. Most don’t know whom to blame.

 

Creative Destruction

In this last category, we put the authors of another new study by the Economic Innovation Group (EIG) think tank. The study tells us more of what we already knew: The U.S. economy is slowing down. Now it creaks along, walking with a cane and trying to remember where it left the car keys.

The study also highlights a question that weighs on the minds of economists and demagogues alike: How come there are so few good jobs? The current occupant of the Oval Office got there largely by blaming the Chinese and Mexicans for stealing jobs from the American heartland.

Americans wanted a “better deal”; he said he could make one. But the study in front of us suggests that the foreigners had little to do with it. “Creative destruction” was how the great Austrian-American economist Joseph Schumpeter described the workings of a healthy economy.

 

Joseph Alois Schumpeter – creative destruction no longer exists, we live in the age of incumbents and cronies

 

Jobs in the vacuum tube industry had to disappear so the sealed silicon circuit business could flourish. Amazon.com can sell stuff, at a loss, online but only at the price of crushing malls and retailers from coast to coast.

Old businesses need to be destroyed to make room for new ones. But government is essentially a backward-looking, crony-coddling affair. And it is at war with this process.

Businesses, and their insider owners, make campaign contributions and hire lobbyists. But politicians get no invitations to speak to industries that don’t exist yet. They get no votes from people who haven’t been born nor tax revenues from businesses that have not yet been formed.

That’s why government looks into the future – but only to try to stop it from happening. And the bigger, and the more powerful and more ambitious, the insiders become… the longer it takes the future to arrive.

 

Unrecorded Recession

In an economy, the future sits at cheap desks in low-rent offices in bad neighborhoods. Old businesses have yesterday’s methods and technologies; new business start-ups have tomorrow’s.

But “Americans are less likely to start a business, move to another region of the country, or switch jobs now than at any time in recent memory,” says the EIG paper. And “dynamism is in retreat nationwide in nearly every measurable respect.”

 

Economic dynamism in the US: buried by regulations, money printing and cronyism writ large – click to enlarge.

 

Forty years ago, nearly 6% of the population worked for a new company. Now, only 2% do. The job “turnover rate” was 12% in 1977; now it is barely half that. Similarly, the start-up rate has collapsed to only half of what it was in the 1970s. In 2010, more businesses closed than opened for the first time in history.

Between 1983 and 1987, the nation added nearly 500,000 new firms. Between 2010 and 2014, only one-fifth as many saw the light of day. The new businesses seem to be concentrated in small geographic areas, too – mostly between D.C. and New York, in South Florida, and in Southern California, with a significant block of growth between Houston and Dallas.

Most of the rest of the nation has been in an unrecorded recession – with more businesses closing down than opening up – for decades. This means the average business is older than ever before… and that more people are more likely to work for one of these dinosaurs than ever before.

Also, as firms age, they tend to discard employees, not add them. The idea of China or Mexico “stealing” jobs is largely fantasy. Old industries typically shed jobs as they age and die. Practically all net new jobs come from startup businesses.

The EIG study goes on to suggest that, in 2014, 1 million jobs went missing because of the lack of new business start-ups. A start-up business typically creates six new jobs in its first year. In 2014, there were some 150,000 fewer start-ups than in the 1980s.

 

Birth and death of new companies – something has gone very wrong indeed – click to enlarge.

 

American Malaise

What happened? The federales supported the old businesses with cheap loans. This led to consolidation and rising profit margins. As for the newborn businesses, they strangled them in the cradle with red tape and regulation.

The authors of this study have done an admirable job of identifying a major part of America’s economic malaise: the lack of business start-ups. But then, like almost everyone else, they want to treat the symptoms.

“Policymakers need to” do this. “Policymakers need to” do that. But it was policymakers – aka the insiders – who created this situation.

They aren’t going to fix it, for the same reason they aren’t going to allow the swamp to be drained, regulations to be cut, government spending to be reduced, or wars to be ended: They like it this way.

Why has productivity in housing declined? Just try to build a house… In most communities, zoning, building, administrative, and environmental regulations slow you down and add costs. You’ll know how it feels to start a business.

 

Charts by: EIG

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 


 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

2 Responses to “Mexicans and Chinese Aren’t “Stealing Our Jobs””

  • Bam_Man:

    “In 2010, more businesses closed than opened for the first time in history.”

    And a research report from Morningside Hill Capital sourced from Zerohedge shows that 93% of the jobs “created” since 2008 were Birth/Death model estimates – ie. net “new” jobs created from new business formation.

    So, as I have suspected for quite some time, the monthly employment figures put out by the BLS are essentially fabrications.

  • Kafka:

    Creative Destruction and foreign nations “stealing our jobs” aren’t mutually exclusive concepts.

    Of course other countries that don’t have the same payroll burdens, government regulations (including pollution standards) are going to have an unfair advantage over Americans. Especially ones that fix their currency to the USD. China?

    Think again Bill

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Trade War Game On!
      Interesting Times Arrive “Things sure are getting exciting again, ain’t they?”  The remark was made by a colleague on Tuesday morning, as we stepped off the elevator to grab a cup of coffee.   Ancient Chinese curse alert... [PT]   “One moment markets are gorging on financial slop like fat pigs in mud.  The next they’re collectively vomiting on themselves. I’ll tell you one thing.  President Trump’s trade war with China won’t end well.  I mean, come...
  • From Fake Boom to Real Bust
      Paradise in LA LA Land More is revealed with each passing day.  You can count on it.  But what exactly the ‘more is of’ requires careful discrimination.  Is the ‘more’ merely more noise?  Or is it something of actual substance?  Today we endeavor to pass judgment, on your behalf.   Normally, judgment would be passed on a Thursday, but we are making an exception. [PT]   For example, here in the land of fruits and nuts, things are whacky, things are...
  • Getting High on Bubbles
      Turn on, Tune in, Drop out Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD).   Dr. Albert Hoffman and his famous bicycle ride through Basel after he ingested a few drops of LSD-25 by mistake. The photograph in the middle was taken at the Woodstock festival and inter alia serves as a...
  • Rise of the Japanese Androids
      Good Intentions One of the unspoken delights in life is the rich satisfaction that comes with bearing witness to the spectacular failure of an offensive and unjust system. This week served up a lavish plate of delicious appetizers with both a style and refinement that’s ordinarily reserved for a competitive speed eating contest. What a remarkable time to be alive.   It seemed a good idea at first... [PT]   Many thrilling stories of doom and gloom were published...
  • US Stock Market: Happy Days Are Here Again? Not so Fast...
      A “Typical” Correction? A Narrative Fail May Be in Store Obviously, assorted crash analogs have by now gone out of the window – we already noted that the market was late if it was to continue to mimic them, as the decline would have had to accelerate in the last week of March to remain in compliance with the “official time table”. Of course crashes are always very low probability events – but there are occasions when they have a higher probability than otherwise, and we will...
  • No Revolution Just Yet - Precious Metals Supply and Demand Report
      Irredeemably Yours... Yuan Stops Rallying at the Wrong Moment The so-called petro-yuan was to revolutionize the world of irredeemable fiat paper currencies. Well, since its launch on March 26 — it has gone down. It was to be an enabler for oil companies who were desperate to sell oil for gold, but could not do so until the yuan oil contract.   After becoming progressively stronger over the past year, it looks as thought the 6.25 level in USDCNY is providing support for the...
  • The “Turn of the Month Effect” Exists in 11 of 11 Countries
      A Well Known Seasonal Phenomenon in the US Market – Is There More to It? I already discussed the “turn-of-the-month effect” in a previous issues of Seasonal Insights, see e.g. this report from earlier this year. The term describes the fact that price gains in the stock market tend to cluster around the turn of the month. By contrast, the rest of the time around the middle of the month is typically less profitable for investors.   Due to continual monetary inflation in the...
  • Russian Gold Rush - Precious Metals Supply and Demand
      Goldfinger Strikes, Sort Of This week, we saw a tweet from a prominent goldbug. He said, "Russia added another 9 tons of gold to its reserves in March. The hits just keep coming." How many errors in this short quip? We count six, exactly one error for every two words.   This one's got everything: Smersh, Spectre, Putler and Pussy Galore! [PT]   One, we call this the fallacy of the famous market actor. Russia is famous. Its purchase of 9 times is therefore imbued with...
  • Flight of the Bricks - Precious Metals Supply and Demand
      The Lighthouse Moves Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick. The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year. A special brick, a government data brick of sorts, labeled...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

The Review Insider

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Diary of a Rogue Economist